Directors and officers face new liability under draft legislation introduced to Parliament.
The key changes for directors and officers proposed in the draft law are:
- liability for losses resulting from their unreasonable behaviour, acts in bad faith or failure to take appropriate action, with a prescribed list of the circumstances in which liability may arise
- liability for CEOs acting unreasonably or in bad faith when exercising rights and carrying out duties, with the onus on them to show that their actions were no unreasonable or in bad faith
- a prescribed list of persons to whom directors and officers may be liable for unreasonable behaviour, acting in bad faith or failing to act, including liability to the company, liability along with the company to holders of its shares and other securities and (in certain cases) liability to other people as well
- a new legal basis for directors' and officers' liability insurance (classifying it as contractual liability insurance under Article 932 of the Civil Code, and amending the laws "On Joint-Stock Companies" and "On Limited Liability Companies" so that they permit this type of insurance)
- a requirement for the material terms of a D&O liability insurance contract to be approved by shareholders in general meeting at the request of the company's board of directors.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
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The original publication date for this article was 13/07/2010.